[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Proposed Rules]
[Pages 68060-68061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33731]
[[Page 68059]]
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Part IV
Department of Housing and Urban Development
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24 CFR Part 81
The Secretary of HUD's Regulation of the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac); Proposed Rule
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 /
Proposed Rules
[[Page 68060]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 81
[Docket No. FR-4297-A-01]
RIN 2501-AC41
The Secretary of HUD's Regulation of the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac); Advance Notice of Proposed Rulemaking
AGENCY: Office of the Secretary, HUD.
ACTION: Advance Notice of Proposed Rulemaking.
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SUMMARY: Through this notice HUD seeks comments from the public
regarding a possible future proposed rule on non-mortgage investments
to amend HUD's regulations at 24 CFR Part 81 governing the Federal Home
Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage
Association (Fannie Mae) (both are known as Government Sponsored
Enterprises or GSEs). Under their respective Charters, the GSEs have
broad authority to invest their funds. The Secretary of HUD, however,
has general regulatory power over the GSEs to ensure that the purposes
of the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, the Federal National Mortgage Association Charter Act, and the
Federal Home Loan Mortgage Corporation Act are accomplished. HUD's
current GSE regulations do not contain specific provisions concerning
non-mortgage investments by the GSEs. Accordingly, HUD seeks the
public's comments regarding possible regulations concerning these
investments. Such comments may include, but should not be limited to,
whether regulations should be issued governing the GSEs' non-mortgage
investments and, if so, what specific requirements should be considered
for such regulations including reporting of non-mortgage investments
and any limits on such investments. This notice solicits public
comments on this subject prior to publication of a possible proposed
rule.
COMMENT DUE DATE: Deadline for comments on this Notice, including
comments on the proposed information collection requirements: March 30,
1997.
ADDRESSES: Interested persons are invited to submit comments to the
Rules Docket Clerk, Office of General Counsel, Room 10276, Department
of Housing and Urban Development, 451 Seventh Street, SW, Washington,
DC 20410-0500. Communications should refer to the above docket number
and title. Facsimile (FAX) comments are not acceptable. A copy of each
response submitted will be available for public inspection and copying
between 7:30 a.m. and 5:30 p.m. Eastern Time, weekdays at the above
address.
FOR FURTHER INFORMATION CONTACT: Janet Tasker, Director, Office of
Government Sponsored Enterprise Oversight, Room 6154, Department of
Housing and Urban Development, Washington, DC 20410; telephone (202)
708-2224; or (for legal questions) Kenneth A. Markison, Assistant
General Counsel for GSE/RESPA, Room 9262, Department of Housing and
Urban Development, Washington, DC 20410; telephone (202) 708-1550.
(These are not toll free numbers.) Persons with hearing or speech
impairments may access this number via TTY by calling the Federal
Information Relay Service at (800) 877-8339, which is a toll-free
number.
SUPPLEMENTARY INFORMATION:
Background
The GSEs have authority to invest under their respective Charters.
Fannie Mae's investment authority is contained in section 303(d) of its
Charter Act (the Federal National Mortgage Association Charter Act, 12
U.S.C. 1716-1723h) and Freddie Mac's authority is based on provisions
of its Charter Act at section 309(a) (the Federal Home Loan Mortgage
Corporation Act, 12 U.S.C. 1451-1459).
The Secretary has general regulatory power over both GSEs. When
Fannie Mae was first chartered as a GSE in 1968, the Secretary was
given general regulatory power over Fannie Mae under its Charter Act, a
power that the Senate report accompanying the Charter Act characterized
as ``plenary''. S. Rep. No. 90-1123, at 82 n. 33 (1968). Section 731(c)
of the Financial Institutions Reform Recovery and Enforcement Act
(FIRREA), Public Law 101-73, Approved August 9, 1989, amended the
Freddie Mac Charter Act at 12 U.S.C. 1451 to grant the Secretary
general regulatory power over Freddie Mac.
In 1992, under the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 (FHEFSSA) (12 U.S.C. 4501-4641), Congress
affirmed the Secretary's general regulatory power and conferred
regulatory power on the Director of the Office of Federal Housing
Enterprise Oversight for matters involving the GSEs' financial safety
and soundness. FHEFSSA provides at 12 U.S.C. 4541:
Except for the authority of the Director of the Office of
Federal Housing Enterprise Oversight * * * and all other matters
relating to the safety and soundness of the enterprises, the
Secretary of Housing and Urban Development shall have general
regulatory power over each enterprise and shall make such rules and
regulations as shall be necessary and proper to ensure that this
part and the purposes of the Federal National Mortgage Association
Charter Act and the Federal Home Loan Mortgage Corporation Act are
accomplished.
Under the GSEs' Charters, the GSEs' purposes are to:
(1) Provide stability in the secondary market for residential
mortgages;
(2) Respond appropriately to the private capital market;
(3) Provide ongoing assistance to the secondary market for
residential mortgages (including activities relating to mortgages on
housing for low-and moderate-income families involving a reasonable
economic return that may be less than the return earned on other
activities) by increasing the liquidity of mortgage investments and
improving the distribution of investment capital available for
residential mortgage financing; and
(4) Promote access to mortgage credit throughout the Nation
(including central cities, rural areas, and other underserved areas)
by increasing the liquidity of mortgage investments and improving
the distribution of investment capital available for residential
mortgage financing.\1\
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\1\ Sections 301(b) of the Freddie Mac Act and 301 of the Fannie
Mae Charter Act.
In enacting FHEFSSA, Congress affirmed that ``[a]ll enterprise
activities should conform with the Charter Act purposes of the
enterprises.'' Senate Report on FHEFSSA, S. Rep. No. 102-282, at 15
(1992) (``Senate Report''). The Senate Report on FHEFSSA stated in
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part:
* * * [T]he authority to ensure that the purposes of the Charter
Acts are accomplished gives the Director and Secretary the ability
to prevent any activities that are clearly inconsistent with the
purposes for which these enterprises were created and which they
continue to serve * * *
Congress has indicated that HUD should not become involved in a
GSE's ``internal affairs such as personnel, salary, and other usual
corporate matters except where the exercise of such powers is * * *
otherwise necessary to ensure that the purposes of the Charter Act are
carried out.'' S. Rept. No. 1123, 90th Cong. 2d. Sess. p. 82 (1968).
Earlier this year, as a result of GSE non-mortgage investment
activities, Chairman James Leach of the House Committee on Banking and
Financial Services requested that the Secretary review the GSEs' non-
mortgage investments. Chairman Leach also asked the General Accounting
Office to investigate these investments. GAO's
[[Page 68061]]
response to Chairman Leach concluded in part, in relation to the GSEs'
investment powers, that HUD's regulatory authority ``includes the
power, at a minimum to determine whether an enterprise activity
conflicts with the statutory mission and to respond appropriately.''
See Housing Enterprises: Investment Authority, Policies and Practices,
B-277287, June 27, 1997, p. 14.
HUD understands that both GSEs have investment policies that
specify permissible credit ratings, maturities and concentration
limits. Non-mortgage investments constituted about 16 percent of the
on-balance sheet assets of Fannie Mae and 11 percent of Freddie Mac's
as of the end of 1996. Over half of Freddie Mac's non-mortgage
investments and over 40 percent of Fannie Mae's were short-term
investments in cash, cash equivalents, term federal funds and
eurodollar deposits. The GSEs have indicated that their principal
reasons for holding non-mortgage investments are cash management and as
an investment vehicle to employ capital for future demand to fund
residential mortgages.
Discussion
With respect to non-mortgage investments by the GSEs, the Secretary
seeks to ensure that in carrying out its regulatory responsibility, the
Government has the necessary tools to ascertain and ensure that the
purposes of the Charter Acts are accomplished. Accordingly, HUD is
considering issuing regulations that implement its programmatic
responsibilities relative to the GSEs' non-mortgage investments to
ensure that the purposes of the Charter Acts are accomplished. While
the Secretary does not support or seek intrusive or unnecessary
regulation, it may be necessary to initiate further rulemaking to
ensure that the GSEs' Charter purposes are accomplished. Accordingly,
HUD is asking for comments on non-mortgage investments by the GSEs and
options regarding the possible regulation of these investments as
follows:
1. Need for Regulations Governing GSE Non-Mortgage Investments
Are regulations governing the GSEs' non-mortgage
investments necessary and appropriate?
2. Purposes of GSE Non-Mortgage Investments
For what purposes is it legitimate for Fannie Mae or
Freddie Mac to hold non-mortgage investments, consistent with their
charter purposes?
3. Establishing Restrictions on GSE Non-Mortgage Investments
Consistent with its oversight responsibilities, should HUD
establish general restrictions on the GSEs' non-mortgage investments,
for example, limiting the GSEs only to those investments which do not
conflict with their ability to ensure that the purposes of the Charter
Acts are accomplished or to those relatively short term investments
which are necessary for liquidity and cash management purposes? If HUD
were to establish general or even more specific restrictions, what
should they provide?
Should HUD establish numerical/percentage of asset limits
on the GSEs' non-mortgage investments? Commenters should indicate the
legal basis and justification in support of how particular limits
suggested are appropriate to ensure that the purposes of the Charter
Acts are accomplished.
4. Establishing Standards for GSE Non-Mortgage Investments
What criteria would be reasonable and feasible for HUD to
employ to distinguish mortgage-related investments from other
investments?
What would be a reasonable and feasible basis for HUD to
use to limit the size (in dollars or relative to mortgage investments)
and/or type of Fannie Mae's and Freddie Mac's short term and/or long
term non-mortgage investment holdings?
Should HUD prohibit the GSEs from borrowing for the
purpose of reinvesting the proceeds in non-mortgage investments in
order to profit on the net yield or spread? If so, how should a
restriction be formulated and what would be its legal basis?
5. Monitoring of GSE Non-Mortgage Investments
What methods should HUD employ to monitor the GSEs non-
mortgage investment holdings?
6. Reporting of GSE Non-Mortgage Investments
Under current rules, HUD may request reports from the GSEs
whenever the Secretary determines that a report is appropriate to carry
out its regulatory activities under the Charter Act or FHEFSSA. In
order to ensure regular reports on GSE non-mortgage investments, what,
if any, specific requirements should HUD establish in its reporting
rules concerning non-mortgage investments by the GSEs?
Dated: December 19, 1997.
Andrew Cuomo,
Secretary.
[FR Doc. 97-33731 Filed 12-29-97; 8:45 am]
BILLING CODE 4210-32-P
